UBUD, Bali -- For most politicians and bureaucrats, so-called tax reform is a cover for them to raise taxes. And so it is not surprising that Japan's Tax Commission insists it is impossible to avoid tax increases to sort out Tokyo's fiscal problems. But it turns out that this assertion is based on logic that places the interests of politicians and bureaucrats above the interest of citizens and taxpayers.
The Tax Commission supports its recommendation for raising income taxes in fiscal 2005 by insisting that it is necessary to curb the national debt. As far as it goes, the central problem identified by the Tax Commission is correct. Japan's governments suffer from large budgetary gaps resulting from chronic shortfalls in tax revenues. For the current fiscal year, the government budgeted for general spending of 82.1 trillion yen while expected tax revenues were only 41.7 trillion yen.
By issuing tens of trillions of yen of new debt each year, the central government allowed the outstanding burden to balloon to over 600 trillion yen by the end of fiscal 2004. When the IOUs issued by central and local governments are combined, total national debt is about 160 percent of GDP, making Japan the most heavily indebted industrialized country.